PRE-BUDGET REPORT Major Announcements Expected Major Beneficiary Industries The Likely Impact

Transcription

1 PRE-BUDGET REPORT Major Announcements Expected Major Beneficiary Industries The Likely Impact 24th January, 2018

2 EXECUTIVE SUMMARY- PRE-BUDGET REPORT he Budget is the fifth and last full budget of the NDA government before 2019 general elections. A government that Thas been marching ahead persistently with economic reforms may now take the time to pause and try to reduce the burden of inflation and taxation on the general public. It is expected that the government would focus on completing the reforms undertaken by it in over the last three years, instead of announcing new ones. The GST which was implement last year on July 1, has taken away half of the budget suspense in terms of indirect taxes and now it is the GST council that decides tax rates for goods and services. The Budget now is mostly about allocations, direct taxes and customs duties and levies. This is the first budget after the implementation of GST and given the stress in the economy that now looks per se only receding, everyone is eyeing on the budget on how the government can boost the economy in view of the tight fiscal situation. Hopes are running high, with investors pitching for more exemption in income tax slabs, a further boost to affordable housing and increase in TDS limit for bank interest, higher reimbursements for medical and travel expenses, higher tax exemption limit. Similarly, finance minister is expected to revisit the policy in regards to the medical reimbursement. Besides, we may see government coming out with measures to tackle some big issue like Fiscal Deficit, Oil-Gas GST inclusion, Long Term Capital Gain in Stock Market, Doubling Farmer income, Cut in Gold Import duty from 10% to 4%, PSU Divestment, Surplus Land Sale smartly. Besides, government is expected to announce Merger of PSU Banks and Defense Budget. Our expectations are divided into the following: Macroeconomic balances: On the Fiscal Deficit front, undoubtedly retaining Fiscal Deficit target at 3% in FY19 would be very tough for the government in the scenario of rising crude oil Prices and rising Govt Spending and Borrowings. It is largely expected that FY18 and FY 19 fiscal deficit target would be revised. We may see a higher fiscal deficit target for the next fiscal and this will result in a higher borrowing by the government as expectations are building for a populist budget, targeted at rural/ agricultural development, job creation, and effective implementation of social sector schemes. In wake of lower tax collections and reduced RBI dividend, the government is eyeing to extend its disinvestment target near to Rs 1 lakh crore as against the FY18 budget target of Rs 72,500 crore. Infrastructure and urban connectivity: Roads and construction are major drivers of infrastructure growth in India. The sector expects amendment of Section 80-IA to include benefits to upgradation of existing infrastructure facilities, abolishment of MAT on construction companies and restoration of section 10(23G), which exempted income on investments in infra companies in the form of debt or equity from tax under it. Also, it is expected that the long term capital gains holding period for real estate investment trusts (REITs) should be cut down to one year from three years. A major impediment to real estate development in India remains the approval process. Administrative reforms should be made to facilitate quicker approval process which will help developers complete and handover projects on time. In fact, the housing for all is one of the important areas where the government is expected to focus in its last opportunity before 2019 elections as it was a major poll promise in 2014 elections. In addition, as many as eight states will be going to the polls during the year, beginning with three in the Northeast in February. In order to achieve targets, the finance minister may enhance the budget allocation significantly in the budget. It is learnt that government has already identified land for affordable housing with six loss-making central public sector enterprises including IDPL, HMT, Hindustan Antibiotics and Tungabhadra Steel Products. Agricultural and rural development: The Budget is expected to have higher outlays for infrastructure and key agricultural sectors, including rural road schemes as well as incentives, to opt for allied activities that are more remunerative than traditional crops, like dairy production, fish farming and horticulture production. Considering the stress on rural economy, it is expected that government would come up to cover farmer s assets, households, cattle, etc. Undoubtedly, crop insurance cover in the form of Pradhan Mantri Fasal Bima Yojana (FMFBY) has been offering some protection and relief to some of the struggling farmers. Employment: The government may announce an outline of a comprehensive road map for creation of quality jobs across sectors through economic, social and labour policy interventions and introduce reforms to attract enterprises and help medium and small scale industries, which are major job providers. The Budget is expected to provide fiscal support to units that create additional employment in the export sector. Job creation incentives or other indirect benefits to Textile, Gems and Jewellery are also expected form the budget. Lastly, there is need to focus on skill development as it is a crucial driver of employment. Small and Medium enterprises: As the MSME segment is considered to be one of the biggest sectors for job creation, new initiatives and exemptions are expected to announce in this budget to boost the sector. The sector demands reduce interest rates, and easier financing options. Also the removal of the Minimum Alternative Tax (MAT) is the demand of the sector. The sector expects government to focus on improving infrastructure and subsidies for the agriculture and manufacturing sectors. 1

3 EXECUTIVE SUMMARY- PRE-BUDGET REPORT Insurance: The insurance industry expects more tax incentive for insurance investment and exemption of insurance policies from GST. Income tax benefit continues to be at the top expectation for the sector. A separate limit of Rs 50,000 per annum for life insurance will give a quick push to the industry. After the implementation of GST, the prices of insurance products have gone up by 3 to 18 percent. Abolition of GST will give a strong boost. Moreover, investors expect government to emphasize on home insurance. Thus, it is very important to a separate tax saving clause for promoting insurance for home so that people wake up to this need. The industry demands government to focus on pension annuity plan. Tax Issues: Two Tax issues namely dividend distribution rate and minimum alternative tax are likely to be addressed by the finance minister in the budget. The expectation of a reduction in rates of dividend distribution tax (DDT) is aligned to the expectation of lower corporate tax rates. A reduction in the DDT rate to 10% from the current 15%, coupled with a 5% cut in the corporate tax rate benefit the Indian corporates. The MAT rate should be aligned with the reduced corporate tax rate. It is also anticipated that the Budget will provide further clarity on the amendments introduced in MAT provisions pursuant to Indian Accounting Standard. Currently, units in SEZ enjoy a tax holiday under the normal provisions of the Income-tax Act, However, they are subject to tax under the provisions of MAT. It is expected that government would exclude units in SEZ from the purview of MAT to boost exports and creation of jobs. Indian Capital market: The much-talked-about Long-Term Capital Gains (LTCG) tax could make its way back to the domestic markets. Capital markets demand that Securities Transaction Tax should be abolished; if Long Term Capital Gains on listed equities were to return. And long-term is expected to be extended to two or three years. The investors are expecting government to revisit on the 10 percent tax on dividends above Rs 1 million that was recently introduced. Meanwhile, a regulatory boost to new investment through the newly-introduced Masala Bonds (overseas rupee dominated bonds) is expected from this budget. 2

4 BANKING, FINANCIAL SERVICES AND INSURANCE Bank Recapitalisation plan for Public Sector banks All Bank Stocks Hike in Section 80D limit, subsidise elderly on All insurance companies health insurance premium Reducing GST rate applicable to insurance All insurance companies premiums POWER Higher budgetary allocation to partly meet the Kalpataru Power, KEC International funding requirements in rural electrification & energy efficiency driven projects Clarity on the import duty / provisional safeguard All solar power companies duty for Photovoltaic modules Measures to improve the long term debt funding NTPC, NHPC, SJVN for the renewable energy sector OIL & GAS Cut in excise duty on petrol and diesel All Companies Oil& gas to bring under the purview of GST All Oil & Gas Companies METAL & MINING Maintained customs duty for iron and steel products Decline in customs duty from 5% to NIL for Chromium and Nickel ores All Metal Companies 3

5 CAPITAL GOODS Provide impetus to infrastructure and agriculture All Capital Goods Companies Spending towards Water Resources & Ganga VA Tech Wabag innovation Spending towards government plans under Siemens, KEC International, ABB India, Kalpataru electrification related to Make in India, Startup India Power, PFC, REC Increased budgetary support and, in turn, spending L&T, Crompton Greaves, KEC Intl. by the Indian Railways. Spending towards government plans under Siemens, KEC International, ABB India, Kalpataru electrification related to Make in India, Startup India Power, PFC, REC AUTOMOBILE Government restore incentives on R&D in form of weighted tax deduction Inclusion of certain imported electric vehicle parts in preferential tariff list to help promote the All Auto Companies eco-friendly technology Consider income tax rebates for consumers to promote purchase and use of electric vehicles IT, ITES Sectors Streamlining with respect to taxation post GST Clarity on the place of effective management, service tax and tax refunds Tax holiday in years of operation of SEZ is available only on creation and utilization of the SEZ All IT Companies reinvestment reserve. The sector expects clarifications on (i) if reserve can be utilized in the year of creation and (ii) if the reserve can be used for any other unit 4

6 TELECOMMUNICATION Rules to standardise processes and fix charges regarding the setting up of telecom infrastructure, including towers and optical fibre cables. Cuts in key telecom levies such as spectrum usage All Telecom Companies charges (SUC), licence fee and Universal Service Obligation Fund (USOF) fees. Customs duty exemption for LTE equipment FMCG Focus on improvement of rural income Government would increase the income tax slabs in order to raise the money in the hands of the All FMCG Companies consumer, especially those from middle class and rural India PHARMACEUTICALS Simplification of approval process with regard to Sun Pharma, Lupin, Biocon clinical trials The tax credit to spread over a period of two to All Pharma companies three years The weighted deduction on R&D should be brought All R&D and Pharma companies back from 150 per cent to 200 per cent CEMENT Higher allocation of funds towards construction of All Cement Companies (ACC, Ambuja cement, infrastructure, irrigation, etc. to continue. Ultratech Cement, Ramco cement) Freight rationalisation for cement transportation All Cement Companies Tax concessions to the middle class All Cement Companies 5

7 TEXTILE Allocation of fund to boost the industry To provide Job creation incentives All textile Companies REAL ESTATE Higher budget allocation toward PMAY scheme All housing companies Help developers in getting better access to funds and also incentivise homebuyers to create demand All construction and real estate companies for the sector Increase the cap on interest paid on home loan by All housing companies buyers from Rs 2 lakh to Rs 3 lakh. researchfeedback@smcindiaonline.com Corporate Office: 11/6B, Shanti Chamber, Pusa Road, New Delhi Tel: Mumbai Office: Dheeraj Sagar, 1st Floor, Opp. Goregaon sports club, link road Malad (West), Mumbai Tel: , Fax: Kolkata Office: 18, Rabindra Sarani, "Poddar Court", Gate No. 4, 4th Floor, Kolkata Tel: , Fax: SMC Global Securities Ltd. (hereinafter referred to as SMC ) is regulated by the Securities and Exchange Board of India ( SEBI ) and is licensed to carry on the business of broking, depository services and related activities. 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